The obligations of the QI
Index
Collection and classification of customers
The QI is required to collect the documentation defined by the QI Agreement.
| Client | Documentation |
| US person | W9, completed of Tax Identification Number (TIN) |
| NRA natural person | W-8 Documentation in accordance with the KYCs of the country of the QI |
| Transparent Entities (FTE, NQI) | The documentation of the entity collecting the proceeds shall be:
The documentation of the partners/beneficiaries/customers is distinguished according to whether they are actual beneficiaries for QI purposes or not. Beneficial Owners:
NON Beneficial Owners:
|
| NRA Legal persons |
|
The documentation received will allow the QI to classify its customers from a tax point of view, to apply the correct tax rate and to proceed with the reporting. This is therefore one of the core activities of the QI. For this reason, failure to document a significant number of customers is considered an “event of default” and can lead to the loss of the QI status.
The NRA customer who submitted the W8 form and the US customer who submitted the W9 form prior to receipt of the U.S. proceeds are considered documented. Documentation of the direct clientele of the QI through the KYC rules is allowed.
The documentation must be completed in its relevant parts so that the QI can establish the tax residence of the client, classifying him with a Chapter 3 status. The QI will not be able to rely on documentation that is incorrect or unreliable: both for reasons of inconsistency, with data already provided by the client or in the possession of the QI, or for a change of circumstances.
Application of US withholding tax
The general rate applied to US source revenues is 30%. This is applied to interest and dividends when the NRA clientele is undocumented. If documented, the reduced rates of the double taxation treaty between the U.S. and the country of tax residence of the relevant person will apply. In addition, interest from bonds may be exempt from portfolio securities (Interest Portfolio Exemption, income reported with income code 01 and exemption code 05), so there will be no withholding tax.
Reporting of forms 1042, 1042-s, 945 and 1099
Every year, the QI must report to the IRS on the US income paid and the US withholding tax paid to its customers.
The following table summarize how and when the report should be made.
| Form | Deadline | Methods of sending |
| 1042 | 15 March | Paper |
| 1042-s | 15 March | Electronic, via fire |
| 1099 |
| Electronic, via fire, or paper through official forms sent by IRS |
In order not to incur into penalties, the forms must be sent by the date of reporting. For a correct reporting:
- use the relevant forms for each reporting year
- respect the rules for filling in each form
- indicate that it is corrective, where appropriate
- use the latest electronic format also for previous reporting years
Submission deadlines of the forms can be extended through:
- form 8809, which entitles to an automatic 30-day extension for forms 1042-s and form 1099
- form 7004, which gives the right to an automatic extension of 6 months for forms 1042
Please note that these forms are used to extend the submission period of the forms but not for the deposit of any amounts due to IRS (e.g. withholding taxes).
Compliance Program
The QI Agreement states that the QI must have an internal compliance programme directed and coordinated by the Responsible Officer.
The internal compliance program includes the organization of internal structures, policies and operating procedures through which the QI manages the obligations of the QI Agreement in a compliant manner.
The main points of the programme can be summarised as follows:
- appointment of the Responsible Officer
- preparation of an operating manual and training of persons involved in the documentation, taxation and reporting process
- monitoring and certification by the Responsible Officer
- periodic review by an independent party (if the conditions for using the Waiver are not met)
Responsible Officer
The QI Agreement requires the QI to identify a Responsible Officer within the QI.
The RO must be a QI officer with the power to produce and supervise the QI Compliance program. In addition to being personally accountable to the IRS, the RO must periodically inform the IRS of the QI’s compliance status.
The RO may be, but is not required to be, the same as the person responsible for FATCA. The RO may also delegate activities to another person, while retaining responsibility to the IRS.
Certification period
The certification period for internal controls covers three calendar years. In the case of the first certification for the QI, shall be considered the first three full calendar years after the entry into force of the QI Agreement.
The periodic certification must be completed and sent to the IRS electronically by 1 July of the year following the certification period.
Audits
Among the obligations of the RO is also to appoint a Reviewer to periodically review the QI about its compliance with the QI Agreement, including obligations for FATCA purposes.
The Reviewer may be internal, external or composed of both.
At the end of the periodic review, which is carried out on each year of the certification period, the Reviewer must prepare a Report with the results of the verification carried out (section 10.06 of the QI Agreement).
The report must be forwarded to the RO. In addition, it must be kept available for any request by the IRS (with a certified translation in English if the original is not in English).
This Report, as well as the periodic certificates, must be kept by the QI for the entire duration of the QI Agreement.
Audit Waiver
Under certain conditions, the QI may request exemption from the application of the Audit Waiver. The exemption must be submitted to and approved by the IRS. This exemption is regulated by section 10.07 of the QI Agreement.
In order to benefit from this exemption, the QI must meet a number of requirements, namely:
- The QI must be a financial institution that does not also act as a QDD;
- The QI cannot be part of a consolidated compliance programme;
- For each calendar year covered by the certification period, the amounts to be reported may not exceed $ 5 million;
- The QI must have submitted forms 1042, 1042-S, 945, 1099 and 8966 in time for all calendar years covered by the certification period;
- The QI must have performed all periodic certifications and revisions required by the specific sections of the QI Agreement;
- The QI must have carried out the periodic certification of internal controls.