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Intermediary Terms

Intermediary

Definition: An intermediary is a custodian, broker, nominee, middleman,or any other person that acts as an agent for another person.  A non-US (foreign) intermediary is either a qualified intermediary or a nonqualified intermediary.  The intermediary stands between the person making the payment and the person ultimately receiving the payment who will report the income on his or her tax return. Generally, a foreign intermediary would provide a payor or withholding agent with a Form W-8IMY, which would certify whether the intermediary is a Qualifieid Intermediary or Nonqualified Intermediary. Helpful resource: Publication 515

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Grantor Trust

Definition: A Grantor Trust is a trust that has a grantor who retains interest or control of the trust. The grantor is subject to anti-abuse rules that prevent the grantor from taking tax advantage from assets that remain in the control of the grantor.  The grantor is treated as the owner of all or a portion of the trust and is taxed on the trust income even if he or she does not receive the income. Generally, the grantor of a trust would provide his or

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Nonwithholding Foreign Trust

Definition: A nonwithholding foreign simple trust is any foreign simple trust that is not a withholding foreign trust. A nonwithholding foreign grantor trust is any foreign grantor trust that is not a withholding foreign trust. See Page 6

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Nonqualified Intermediary

Definition: A nonqualified intermediary (NQI) is any intermediary that is a non-US (foreign) person and that is not a qualified intermediary.  This means that the NQI has not entered into any agreements with the IRS regarding its obligations as an intermediary.  (See QI Agreement). See Page 6 See Also

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Foreign Simple or Grantor Trust

Definition A Foreign Simple or Grantor Trust is considered non-US (foreign) unless it meets both the following tests. – A court within the United States is able to exercise primary supervision over the administration of the trust. – One or more U.S. persons have the authority to control all substantial decisions of the trust.

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Qualified Intermediary Agreement

Definition A Qualified Intermediary (QI) Agreement is an agreement between the QI and the Internal Revenue Service (IRS) in order to simplify the obligations of the QI as a withholding agent under Chapter 3 and 4 as payors and under chapter 61 and Section 3406 for amounts paid to the account holders of the QI. Obligations include, but are not limited to: Collecting documentation from account holders Applying due diligence standards to the documentation Applying nonresident alien withholding , FATCA withholding, or backup withholding where required Reporting on Forms 1042, 1042-S,

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Qualified Intermediary

Definition: A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary withholding agreement with the IRS. Structure: A QI’s EIN will always begin with 98. Withholding Responsibility: QIs certify to their status on Form W-8IMY.  Generally, QIs are responsible for NRA withholding and reporting responsibility for their own account holders or customers, however, they may also assume Form 1099 reporting and backup withholding responsibility. Because QIs agree to take on these additional compliance obligations in a QI Agreement with the IRS,

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Qualified Derivatives Dealers

Definition: A QDD is a qualified intermediary that is an eligible entity that agrees to meet the requirements of Regulations section 1.1441-1(e)(6)(i) and the QI agreement. An eligible entity is defined in Regulations section 1.1441-1(e)(6)(ii). Requirements: To act as a QDD, the home office or branch, as applicable, must qualify and be approved for QDD status and must represent itself as a QDD on its Form W-8IMY and separately identify the home office or branch as a recipient on a withholding statement (if required). Each home

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Complex Trust

Definition A Complex Trust is not a Simple Trust and is able to accumulate income, distribute amounts other than current income, and make payments for charitable purposes. Generally, a complex trust would provide its own withholding certificate in its own name, as it is not treated as a flow-through entity.   Citations:  Treas. Reg. § 1.1441-1 – Requirement for the deduction and withholding of tax on payments to foreign persons. Treas. Reg. § 1.1441-5 – Withholding on payments to partnerships, trusts, and estates.

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Trusts

Definition: A Trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law.

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Territory FI

Definition: A territory financial institution is a financial institution (FI) that is incorporated or organised under the laws of any US territory. An investment entity that is not also a depository institution, custodial institution, or specified insurance company is not a territory FI. A territory FI acting as an intermediary or that is a flow-through entity may agree to be treated as a US person. Treas. Reg. §1.1471-1(b)(130) See Page 6

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Simple Trust

Definition: A Simple Trust is a trust that must distribute all of its income each year.  Generally, the trust itself is not allowed to accumulate any income, distribute any of the trust assets, or pay money for charitable purposes.  If a trust distributes any assets during the year, then the trust becomes a complex trust for that year.  A trust may be a simple trust one year and then a complex trust in the next year. Whether a trust must distribute all income currently depends on the terms

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Withholding Foreign Trust

Definition: A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. A WT may act in that capacity only for payments of amounts subject to nonresident alien (NRA) withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. A WT acting in that capacity must assume NRA withholding responsibility for these amounts. A withholding agent may treat a WT as a payee if it has

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Withholding Foreign Partnership

Definition: A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. A WP may act in that capacity only for payments of amounts subject to nonresident alien (NRA) withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. A WP acting in that capacity must assume NRA withholding responsibility for these amounts. A withholding agent may treat a WP as a payee if it has provided a Form

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Withholding Statements

Definition: A Withholding Statement is an important part of an intermediary withholding certificate (FORM W-8IMY) and provides the withholding agent with all of the information required for Chapter 3, Chapter 4, or Chapter 61 reporting and withholding.  When an intermediary, or flow through entity, provides a withholding agent with a Form W-8IMY, generally, it must include a Withholding Statement.  As such, the penalties of perjury statement provided on the Form W-IMY also apply to the Withholding Statement. The Withholding Statement may be provided in any manner; however, the withholding

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