QI compliance

US treaty withholding tax relief
The Qualified Intermediary ("QI") regime became effective in 2001. If certain conditions were met, it provided US withholding tax relief at source on US-sourced income paid through non-US banks acting as nominees on behalf of their customers.

Under a Qualified Intermediary Agreement with the IRS, a QI commits to the following obligations:

  • Identification and documentation of clients;
  • Reporting;
  • Withholding;
  • Processes to monitor QI obligations and certification of effective internal controls.

With the introduction of FATCA ("Foreign Account Tax Compliance Act"), new requirements were imposed on financial institutions. In order to coordinate the obligations under FATCA with those of the QI regime, a revised QI Agreement was published in June 2014 (Revenue procedure 2014-39). This revised QI Agreement changed the QI’s obligations regarding documentation, withholding, reporting and internal compliance program, and expired on 31 December 2016. Meanwhile, the US tax authorities (Internal Revenue Service - "IRS") have published Revenue Procedure 2017-15, with a new text of the QI Agreement effective on 1 January 2017.

Front-office (relationship managers collecting the documentation), back-office (processing reporting or withholding, settlement) and compliance functions are impacted. New policies and procedures as well as system enhancements need to be implemented.

Identification & Documentation

  • Complete and correct documentation is necessary to apply reduced withholding tax rates for payments made to clients; modifications to those rules, e.g. to align with FATCA, need to be carefully monitored.
  • If entity clients want to benefit from reduced withholding tax rates, new standards regarding the so-called “limitation on benefits” must be respected (cf. new version of form W-8BEN-E).
  • Some QIs apply the so-called "joint account provision" (for certain partnerships and trusts). Under the new QI agreement, conditions and documentation required for the application of this rule are different, and QIs must (1) analyse whether the rule can still be applied, and (2) update their documentation.


  • Most QIs used to submit hard copies of Forms 1042-S. As the forms now need to be submitted electronically, QIs must either implement a tool or seek external support for this submission.
  • The forms that are to be used change almost every year and become more complex as they capture more information each year. Many QIs struggle with ever-changing data fields and codes.


  • A QI may or may not assume primary withholding responsibility, but even a non-withholding QI must classify its clients based on the applicable tax rates. Furthermore, even a non-withholding QI has ultimate (residual) withholding responsibility if the QI knows or has reason to know that the withholding on a payment was not sufficient.
  • The withholding statements to be provided to upstream custodians are becoming increasingly  complex as they combine traditional QI ("Chapter 3") with FATCA ("Chapter 4") rules.
  • Re-classification of (non-US) payments as US-sourced payments for certain dividend-equivalent payments will increase complexity and risk (e.g. section 871(m) and Qualified Derivatives Dealer status).

Compliance & Governance

  • The revised QI Agreement replaces the external audit requirement with an internal compliance program, including written procedures and training requirements, in addition to periodic certification and periodic review requirements.
  • The QI is required to designate a responsible officer who makes periodic certifications to the IRS in compliance with QI and FATCA. In this certification, any material failure must be disclosed and remediation actions explained.

Our solutions

PwC can assist you with the following services, covering all impacts and impacted business functions.

Diagnostic & Design
  • Gap analysis on processes to identify gaps with new requirements;
  • Reviewing and drafting procedures;
  • QI/FATCA healthchecks;
  • Cost/benefit analysis and eligibility assessment of obtaining the Qualified Derivatives Dealer ("QDD") status.
Periodic reviews and controls
  • Healthchecks on existing internal controls;
  • Periodic review reports in accordance with IRS guidance (including testing of accounts and transactions);
  • Dry run/comprehensive reviews;
  • Assessing eligibility and assistance in the application for a waiver with respect to the periodic review requirements.
  • Assistance in the electronic filing of forms 1042-S;
  • Reviewing and commenting on forms 1042.
Ad hoc technical support
  • Answers to questions and / or memorandums;
  • Hotline service.


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Contact us

Pierre Kirsch

Tax Partner and Authorised Manager of the PSF, PwC Regulated Solutions S.à r.l.

Tel: +352 49 48 48 4031

Camille Perez

Tax Director and Authorised Manager of the PSF, PwC Regulated Solutions S.à r.l.

Tel: +352 62133 46 18

Frauke Anna Maria Ortmann

Tax Director, PwC Regulated Solutions S.à r.l.

Tel: +352 62133 37 62

Robin Bernard

Tax Director, PwC Regulated Solutions S.à r.l.

Tel: +352 62133 37 26