As the deadline for applications to renew or enter into a Foreign Partnership Retention Agreement (WP agreement) on March 31 is fast approaching, partnerships must decide whether to renew or enter into a WP agreement. To apply, they must submit an application electronically through the Qualified Intermediary (QI), the Foreign Partnership Holdback (WP) Application System and the Foreign Trust Hold (WT) Application System. This includes all WPs that had a WP agreement in effect before January 1, 2017. Documentation. Whenever foreign partners or account holders receive U.S. income, the IQ provides a tax withholding tax return, as opposed to foreign records. The IQ also keeps foreign documents at its location. Change of offset method. Under the previous version and the new version of the WP agreement, a WP must withhold payments at the time of distribution to a non-U.S. partner if the distribution takes place during the calendar year and includes revenue from the U.S. FDAP. However, if the U.S. FDAP income is not distributed in the calendar year in which it is earned, the WP must retain a non-U.S.
partner`s distribution share of U.S. FDAP revenues at the earliest of: (i) the date on which the income is actually distributed to the non-U.S. partner in the following year; (ii) the date of the following year in which a Schedule K-1 is made available to the non-U.S. Partner, or (iii) the «due date» of the following calendar year for the provision of a Schedule K-1, including extensions, to a Partner, whether or not wp is required to provide the Partner with a Schedule K-1. In other words, U.S. FDAP withholding income is delayed (i.e., delayed) until the year following the year in which it is earned. Organizations considering entering into these agreements, or currently having agreements in place, should consult with their tax advisors to understand the requirements and assess possible gaps in existing processes. In the early years of the WP/WT diet, the WP diet was little used, and the WT diet was almost never used. There is anecdotal evidence that the WP diet became more popular afterwards. The changes to the new agreement could make WP/WT status more popular as they ease restrictions on when a WP/WT can assume responsibility for Chapters 3, 4 and 61 with respect to indirect partners/beneficiaries, and allow WP/WTs in some jurisdictions to document partners/beneficiaries with approved KYC documentation. (The IRS was sometimes willing to allow both under the old agreement, but any WP/WT deal had to be negotiated specifically.) It remains to be seen whether these new rules will make WP/WT status more attractive than in the past. A foreign partnership/trust can become a WP/WT if it is a PFFI, an IGA FFI or an NFFE.
A foreign partnership/trust that is considered FATCA compliant because it is a «registered FFI considered compliant» can also become a WP/WT. Finally, a pension fund that is treated as an «exempt FFI» either under the regulations or as an IGA can become a WP/WT. A WP/WT that is not a pension fund is responsible for due diligence, reporting and deference to its partners/beneficiaries under Chapter 4 to the same extent as is currently the case under Chapter 3. (A pension fund that becomes a WP/WT has no such responsibilities.) The main objective of the qualified intermediary Foreign Partnership/Foreign Trust is to make life a little easier for companies based in other countries but receiving AMERICAN income. Qa entering into an agreement with the IRS may be able to reduce red tape or bureaucracy in tax returns and appropriate withholding tax measures. The WP and WT withholding agreements and the application procedures for the agreements are in the 2003-64 revenue procedure, in the 2004-21 revenue procedure and in the 2005-77 revenue procedure. Under previous law, compliance with WP/GT had to be verified by an audit by an external auditor, and the audit report was submitted to the IRS for approval. WP/WGs that chose to report under Chapter 3 on a consolidated basis had to undergo a schedule-based audit.
Other WP/WGs were not required to be audited unless the IRS had specifically requested one. With the new agreement, the previous audit obligation is no longer applicable. Instead, each WP/WT must appoint a responsible agent and implement a compliance program. The responsible officer must periodically confirm to the IRS that the WP/WT complies with its obligations under the agreement. The WP/WT must obtain a regular review either by an external consultant (who does not need to be an auditor) or by the company`s internal audit function before making the regular certifications. .