Qualified Intermediary

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).

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 on compliance with QI and FATCA. In this certification, any material failure must be disclosed and remediation actions explained.